Stock Investment Research
You hear every day how "analysts" are raising or lowering their stock ratings.
Ever wondered how they come up with those stock ratings and just how accurate
they are? Well, I was a stock analyst for close to ten years and can tell
you first hand that you can do your own stock investment research and come up
with answers that are just as accurate as theirs. I'll try to break down
into simple terms some of the techniques they use. If you are interested in
learning more, there are thousands of books devoted entirely to this subject.
However, I would recommend keeping things simple and not getting too technical.
There are two steps to choosing the right stocks to invest in.
First, do your investment research. This means learning about the
fundamentals of the company, including their products, services, business goals,
management depth and other intangible assets. Once you've done this, it's
time to apply various
techniques in order determine if the stock is priced attractively and if
you should buy it.
In this section, I'll discuss how to do your own stock research. To
learn about stock valuations, visit the
section. You'll need to take the results of both techniques into account
before making your investment decision.
Let's get started by looking at the different ways to research stocks.
And by research, what we really mean is that we are going to find out as much
information about the company as possible and then use that information to deem
whether or not the company merits your investment consideration. Use the
following methods to formulate an overall opinion about the quality of the
company you are considering.
Annual and Quarterly Reports
Each company files quarterly and annual reports with the SEC, which are
called 10-Qs and 10-Ks. They include a lot of information about the
company and how the company does business, including competition, long term
risks, as well as fully explained sales and cost analysis. Read
these statements over to learn about the company you are researching. The
more of these statements you read from different companies, the more you will
learn to take away valuable information about the companies. These forms
can be found through any finance website such as yahoo or google.
Press releases are distributed through any finance website or on the
company's website. They can be released at any time and often cause stock
prices to rise or fall sharply. Go back in time and read the press
releases to understand what the company deems important and what the current
issues are with the company. Press releases often announce new contracts,
mergers and acquisitions, management changes, and of course earnings releases.
Watch for new press releases everyday to keep up with the companies you are
Every industry has an expert or organization that follows it. Many of
these industries are private and only offer full information for exorbitant
prices. However, most industry analyses offer some of their information
for free. Stock analysts also offer industry reports. Sometimes you
can buy these through a finance site or brokerage. Also, you can always
call or email the organization or analyst and ask them for a copy.
Analyst Days and Other Webcasts
Most companies have analyst or investor days. You probably won't get an
invitation but it is worth contacting the company and asking if you can attend.
They are often broadcast on the web so you can attend them for free. Also,
if a company you are following is presenting at an upcoming conference, ask them
if you can attend. They will likely put your name on the guest list so you
can get in for free and learn about them and other companies in their industry.
Companies host conference calls that are streamed via the web. Some are
scheduled weeks in advance, like for earnings reports. Some are scheduled
just a few minutes in advance, for suprise news. These calls are available
to anyone and you should listen to as many as you can. You will learn how
management thinks and acts and can better form your investment decision.
Do your own competitive analysis. Compare everything about the company
you are researching against other companies that are like it. Is it's
market share growing? Are its margins as high? Is it growing faster
or slower than others. If your company is better than others in its
industry, it usually trades at a premium in price to the others. Only buy
companies that are on the upswing.
Look for intangibles that make your company stand out. For example,
Dell and Apple both make computers but Apples brand name is an intangible that
stands above the crowd. Other intangibles to take into account are
patents, ability to make accretive acquistions, and the quality of the company
to attract talent.
You can find the history and background of the core management team in their
10-K filing. You can also do some searches on the Internet that can tell
you more about the individual leaders of the company. More importantly,
listen to the conference calls and look at their track records to make sure they
are good. Good management, especially in bad times, can make all the
difference. Look for experience and a history of success.
Find out what the goals of the company are. Are they to grow existing
business rapidly, grow by acquisition, help the environment, protect their
assets, etc. Make sure they meet your investing goals. Watch for
companies that are increasing spending faster than sales. Although they
are likely adding to future sales growth, they can go through periods of slow
earnings growth in the near term.
Contact the Company
Have any questions about the company you are researching? Call them!
That's right, call their corporate headquarters and ask for investor relations.
Or email them. They can probably answer most of your questions.